Home Buying 101

Buying a home is a big decision. The financial and emotional stakes are high, but the rewards can make it all worth it. This material can help you prepare to start your home-buying journey.

The Benefits of Buying vs. Renting

Plain and simple, owning a home can improve your quality of life, provide stability and give you a sense of control you just can't get from renting. You have a place to live when you rent, but buying is something much deeper – and better.

The intangibles are tough to measure, but there are other benefits you can quantify:

The interest on your mortgage is a tax deduction:
While this isn't a reason in itself to buy a home, it's nice to get a break at tax time.

Fixed monthly housing payment:
If you opt for a fixed-rate mortgage, the monthly rate of your mortgage won't change for the length of the term.

Tax-free gain:
When it's time to sell your home, you don't pay taxes on the proceeds of the sale that are above what you paid (with some restrictions – see information on capital gains).

Deciding Where to Live

If you're unfamiliar with the area where you’re moving, your buyer’s agent is an invaluable resource. He or she can offer insider knowledge on neighborhoods, schools, access to recreation and shopping districts, and the many other details on local neighborhoods and subdivisions.

It’s important to have a clear picture on the features that matter most to you in a home or location. Creating a list of “must haves” and flexible "nice-to-haves" from the start will make things a lot easier for you.

Condition – move-in ready or a less expensive home in need of improvements?

Your buyer's agent can offer advice on the countless items you should consider according to your lifestyle, budget and particulars.

What to Expect

For most people, finding the right home begins with a house-hunting strategy combining personal preferences, guidance from others (including an agent) and a mix of neighborhood exploring and online search.

For some, the search takes a while; others find what they want right away. In either case, your real estate agent can be a huge resource of insight and guidance, working through issues or complications that arise along the way.

Here’s a general outline of what to expect during a home purchase, from the buyer's perspective.

Buyers make a purchase offer.

This is it! You've found the home of your dreams, looked over disclosure documents, reviewed comparable sales data, talked it over with your agent and submitted an offer. The sellers may accept your first offer, but more often will return a counteroffer. In fact, additional negotiations are common, and your agent will help you through this generally stressful stage.

The sellers accept.

Once everyone is happy with the terms, the parties have reached what is known as mutual acceptance and enter into a purchase and sale agreement.

Buyers put up earnest money.

To solidify your intent to buy, you'll place a deposit, or earnest money, on the property. The amount varies, but is generally at least 1 percent of the purchase price. You'll write the check to the escrow company, not the seller. Note: This money counts toward your down payment later.

Escrow opens.

The earnest money deposit goes into an escrow account, where all funds will be held until closing, when they are then distributed to the right people (lender, mortgage broker, title insurer, real estate agents, etc.).

Buyers apply for a mortgage.

This step is streamlined if you've already been preapproved for a loan (which is a smart thing to do). If not, you'll begin the loan application process now. The lender inspects title history and orders a property appraisal. The lender needs key information about the property before granting a loan. This is when potential problems can come to light. For example, the appraisal could show a lower value than the purchase price, or the lender could have trouble finding comparable homes. Also, the title search could turn up liens or other problems.

A home inspection takes place.

You'll hire an inspector – generally, your agent will suggest one, or provide several options – to check the home and point out minor and major problems that should be fixed before closing. At this point, you still have the option of backing out of the deal. Through your agent, you'll submit a list of requested work, and the sellers have the option to complete the tasks, do some of them but not others, or reject the request. The sides will negotiate until reaching an agreement.

Removing contingencies.

If the house passes inspection, appraisal and title search, and everything is good to go, then all contingencies can be removed, paving the way to a closing.

Closing time arrives.

Once contingencies are removed and financing is set, all parties sign a seemingly endless stack of documents, and the transaction closes.

Packing begins!

When the final signatures are in place, it’s time to put down the pens, shake hands, exchange smiles and start packing for the move!

Why Use A Buyer Agent?

A real estate transaction is a complex process involving stacks of paperwork and a number of outside service providers and contractors.

An experienced buyer's agent can guide you through the process, answering your questions and serving as your advocate (see the Anatomy of a Home Purchase). Your agent will help you find the property that fits your needs, submit offers and counteroffers, suggest a good property inspector and other professionals, and provide all sorts of relevant advice.

With a buyer's agent, you'll have someone on your side, looking out for your interests every step of the way.

What are the costs involved in hiring a buyer’s agent?

As a buyer, you don’t pay your agent directly. Instead, the agent receives an agreed-upon portion of the listing agent's sales commission (usually about half), which is paid by the seller.
If you're thinking this structure works against you by giving your buyer's agent an incentive to let you pay more than you need to, consider this:

The increase in a buyer's agent commission on, say, a $5,000 to $10,000 jump in price would be only $125 to $250. Good buyer's agents – those who are productive and engaged in the business full time – aren't going to risk their reputations. Your satisfaction – which can generate referrals to your friends and family – is the lifeblood of their careers.

How Much House Can You Afford?

Knowing how much you can afford to pay is a crucial step in your search. Nailing down your budget early will make the overall process more focused and less stressful.

The 28/36 Rule

The 28/36 rule is an established benchmark used by many lenders to determine how much credit to offer you. Here's how it works:

The "28" refers to the notion that no more than 28 percent of your gross monthly household income should go toward housing costs, which include mortgage principal, interest, taxes and insurance.

To calculate, simply multiply your gross monthly income (amount before taxes) by .28. Use this amount as a guide for how much house you can afford.

Example: You earn an annual salary of $70,000. Divide 70,000 by 12, giving you a monthly gross income of $5,833. Multiply that by .28, and you'll find you should spend no more than $1,633 each month on total housing costs.

The "36" part of the 28/36 rule refers to your overall debt, which shouldn't exceed 36 percent of your income. This is important to consider because other high monthly debt loads – such as car and credit card payments – impact the amount you can afford to spend on housing.
For first-time home buyers, the tricky part is knowing how much to budget for taxes and insurance. An experienced real estate professional can assist you with this.

Helpful Tip

Get preapproved for a mortgage. Your lender can approve you for a certain to loan amount prior to your home search. This gives you a solid number against which you can assess the affordability of the houses you visit.

Why Choose Jeffrey Burnatowski as My Buyer's Agent?

If you need help
buying your next home, I,
Jeffrey Burnatowski of RE/MAX Real Estate, will provide you with guidance, market research, loan referrals and help negotiating. I will be at your side for closing and long after.

As a Seller, you establish an agency relationship with the Broker when you list your home. As a buyer, you must choose to be represented in a real estate transaction or to merely act as a homebuyer without representation. If you need help buying your next home, I, Jeffrey Burnatowski of RE/MAX Real Estate, will provide you with guidance, market research, loan referrals and help negotiating. I will be at your side for closing and long after.

It is customary in Pennsylvania that the buyer's agent fee is paid by the Seller at closing. Because of this, buyer representation is FREE, so why not have the advantage of a REALTOR with over 30 years of experience working for you?

When buying a home, the cost is the same if you choose to be represented by a REALTOR or to have no representation. Representation offers far more benefits and greatly streamlines the home buying process. It is, therefore, to your advantage to choose representation when buying your next home.

My clients receive a level of service that is unsurpassed in the industry today. If you are buying a home or selling your current one, I not only specialize in helping you find your next home, but also in guiding you through the closing process.

Buyer Profile Program

Buyers and sellers who sign a Buyer Broker agreement can receive emails of every listing that meet their specific criteria so they can drive by and look at homes throughout the listing period. You can contact me about any home you see advertised. I am able to show any home even if it is not listed by RE/MAX Real Estate. In addition, if you decide to sell, the search for your new home will be stress-free. I will always keep you up-to-date about the market and current listings.

Listening Is my Business

I want you to tell me everything down to the smallest detail that describes your perfect home. Does it have a window seat, three car garage, an office, or perhaps a whirlpool tub? How does it feel? Open and airy, warm and cozy, or bold and dramatic? What type of neighborhood? Are schools important? What is your lifestyle like? Would you like amenities, such as a pool or a tennis court? What are some things you do not want? I will show you EVERY listing that has all of the features you desire within your price range. Then, just tell me which ones you would like to see in person. It’s as simple as that. I find the best available homes on the market. In most cases, my buyers find their new home in the first group of property matches.

Advantages of Signing a Buyer Agency Agreement with Jeffrey Burnatowski

Enlisting the services of a professional Buyer’s Agent is similar to using an accountant to help you with your taxes, a doctor to help you with your health care, or a mechanic to help you with your car. The advantage is obvious. You could learn about accounting, medicine, and automotive mechanics and perform these services yourself - but, who has the time? You probably committed to a full-time career and family responsibilities. This is why you allow other professionals to help you in specific areas of expertise.

I have devoted over 30 years to perfecting my services. It’s always better to make an informed decision to buy something than it is to be sold something. When you have me as your Buyer’s Agent your interests are professionally represented, you have more control and peace of mind than if you buy without an agent. Buying a home is a big decision. Let me act as your advocate, even if you find that perfect home yourself. Finding the home is only one step in the entire home buying process.

You Get a Great Home Quickly and Conveniently

The advantage to signing a Buyer’s Agency Agreement with me is that you will find and secure the perfect home exactly when you need it. Without an experience agent, it is nearly impossible to find a home that meets your needs, get a contract negotiated, and close the transaction in a reasonable amount of time. When you tour homes with your personal Buyer’s Agent you will already know that the homes meet your criteria for bedrooms, bathrooms, garage space, basement, square footage, neighborhood, etc. all within your price range.

You Get a Personal Specialist That Knows Your Needs

Just as your accountant, doctor, and mechanic get to know your needs through a steady relationship, your Buyer Agent also gets to know your real estate needs and concerns. This type of relationship is built through constant open communication and by touring homes together. I will compile feedback and concerns about each home and refine your search criteria.

Home Buyer's Checklist

Use this handy checklist to guide you through the home buying process.

Use the appraisal and inspection reports to re-negotiate if necessary.

Choose a home insurance company.

Complete the loan process with the lender.

Do a walk-through inspection prior to closing.

Set aside cash for the closing costs and down payment.

Close the Purchase.

Review the settlement document at least two days before closing to see how funds will be collected and distributed.

Get a cashier’s check for the amount you need to bring to closing

First Time Home Buyer's Guide

Buying a home is a big deal. The financial and emotional stakes are high – but the rewards can pay dividends for a lifetime.

Plain and simple, owning a home can improve your quality of life, provide stability and give you a sense of control you just can't get from renting. You have a place to live when you rent, but buying is something much deeper and better.

Get your financial house in order1

Before you decide to buy a home, it's essential to make sure your credit is in good shape and repair any damage previously done. Know your credit score: 35% of successful buyers recently reported they didn't know their credit score when they went house shopping, according to a national survey fielded for MortgageMatch.com. Having enough money set aside for a down payment is a key component to making sure you are ready to purchase a home. Also, it's important to not put all of your money in the down payment as other fees or unexpected expenses often arise after closing.

Don't Fall in Love With a House You Can't Afford

Find out how much you can afford: establishing your purchase power upfront, including how much money will be required for a down payment and closing costs, is a must for first-time buyers. Look for special loans available from FHA and government sponsored loans for first-time home buyers that reduce the amount of money required to get into a home.

Key Terminology

Since first-time buyers are new to the market and will finance a significant portion of their purchase, it’s important to get familiar with the processes and terminology associated with home buying. Here are a few key terms to add to your vocabulary:

Bait Rate: Misleading mortgages with low rate promises and no contingencies generally for those with extraordinary credit. Rates are based on: credit, debt-to-income and loan-to-value ratios, the size and type of loan, property location, and the day you lock your rate, etc. The loan isn’t locked until the application is accepted. By then, it may be too late to find a better rate from another lender.

Basis Point: A term used in the mortgage industry which simply means 1/100th of 1 percent.

Closing Costs: The fees required to process and close your loan. They’re a cash obligation running from three to five percent of the purchase price. Motivated sellers might pay a portion of these costs.

FHA: Federal Housing Administration, the Federal Government Agency that oversees the US Housing market. FHA Loans are loans insured by the Dept. of Housing and Urban Development.

FRM and ARM: A Fixed Rate Mortgage Loan (FRM) is a loan where your interest rate stays the same for the life of the loan. ARMs are Adjustable Rate Mortgages with variable interest rates that fluctuate based on an agreed-upon index.

GFE: The Good Faith Estimate (GFE) is a document explaining all costs involved in getting a loan.

TIL: The Federal Truth-in-Lending Form is a document that spells out the costs and fees of the loan.

Per Diem Interest: Interest you pay per day, from the day you close to the last day of the month.

Underwriting and Underwriting Fees: Underwriting is a process the lender performs to qualify a borrower for a loan and the fee is what you pay the lender at closing to cover evaluating the risk involved with loaning you money.

Warranty Deed: A legal document guaranteeing the seller has a right to sell a property, which is very important if you are considering a distressed or discounted property.

Be sure to factor in all the costs2

Although the thought of paying a mortgage is more enticing than paying rent, it's important to understand all the costs involved in buying and owning a home as you determine whether you can afford to join the ranks of homeowners.

Potential buyers sometimes forget to factor in the down payment, homeowners insurance and the possibility of depreciation, as well as the costs associated with closing the transaction, moving, purchasing major appliances, and home, landscape and pool maintenance, not to mention furnishings and design accessories once you move in.

The days of calling up the landlord to fix your problems come to an abrupt halt when you're a homeowner. You'll be responsible for everything from malfunctioning appliances to leaky faucets to broken heating and air conditioning units and everything in between. And if you buy an older home, you'll probably eventually encounter costly repairs, such as replacing the roof or windows.

To determine whether you can afford to buy a home, you should do the following:

Determine the property value of homes that interest you. The property value (what the home is worth) is determined by comparing the prices of homes recently sold of similar size in the same neighborhood. Your real estate agent will be able to provide this information to you.

Review different mortgage loan types and compare their required down payment amounts to the money you have available. Down payments, based on a percentage of the value of the property and determined by the type of mortgage you select, typically range from three to 20 percent of the property value. Don't forget to factor in private mortgage insurance, a policy that allows mortgage lenders to recover part of their financial losses if a borrower fails to full re-pay a loan. Mortgage insurance makes it possible to buy a home with as little as 3 percent down. Usually, the lower the down payment, the higher the PMI, which typically will cost somewhere between $40 and $125 a month.

Get an estimate of your closing costs, including points (the dollar amount paid to a lender for obtaining a lower interest rate on a loan—one point is one percent of the loan amount), taxes, recording, inspections, prepaid loan interest, title insurance (a policy that insures a home buyer against errors in the title search; cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller) and financing costs from your mortgage lender or a real estate professional. These will generally add up to between 2 and 7 percent of the property value. You'll receive an estimate of these costs from your lender after you apply for a mortgage.

Add the down payment requirements and the closing costs together to determine the amount of money you'll need right off the bat. But you're not done yet.

Think about the actual move. Will you hire a moving company or rent a truck? Either way will cost you. The more stuff you have, the more it will cost.

Property taxes. Many lenders will require an impound account in which monthly payments for property tax (and often insurance) are paid together with the monthly mortgage payment. You can figure your average annual tax rate will be about 1.5 percent of the purchase price of your home.

Next, budget for maintenance and repairs. HouseMaster, a home inspection company with 300 franchises nationwide, said that based on a study that evaluated 2,000 inspection reports, the typical costs of major repairs are:

Roofing: $1,500 to $5,000

Electrical systems: $20 to $1,500

Plumbing systems: $300 to $5,000

Central cooling: $800 to $2,500

Central heating: $1,500 to $3,000

Insulation: $800 to $1,500

Structural systems: $1,500 to $3,000

Water seepage: $600 to $5,000

Once you crunch the numbers and find you come up a bit short, investigate ways to reduce or creatively fund your down payment—it can come from a variety of sources. Check with your realtor or lender to find out what's available.

You'll also need to factor in the cost of homeowners insurance. In addition to the type of construction, age of the home, your credit history and past insurance history, new issues like litigating costly toxic mold cases are raising homeowners insurance rates.

In fact, the National Association of Insurance Commissioners reports that homeowners will spent an average of $822 on homeowners insurance in 2007, the last year data was available.
In your final analysis of whether you can afford to buy a home, you'll want to weigh the costs with the financial benefits—a consistent mortgage payment (unlike rent, which can increase), the tax benefits (you can deduct, in most cases, mortgage interest, closing costs, and property taxes), and the all-important appreciation factor—the rate of increase in a home's value.
And of course, you'll want to weigh perhaps the biggest benefit of all—having a place to call your own.